6th Circuit rules in favor of 3-tier system blocking access to out-of-state liquor retailers in Michigan case looking to allow out-of-state retailers to deliver to in-state consumers where in-staters have that privilege.

In case you don’t want to read through this, the majority of the reasoning allowing discrimination between in-state and out-of-state liquor retailers in this opinion rests on the rationale that requiring alcohol be purchased from in-state wholesalers is a legitimate exercise of state power under the 21st Amendment separating in-state and out-of-state circumstances and thereby supporting a Commerce Clause violation. SCOTUS and other circuit precedent are interpreted to allow such requirements as proper abrogrations of the Commerce Clause authorized by the 21st Amendment.

The basic legal analysis is that because dicta allows a three-tier system and because a wholesaler requirement is a part of that three-tier system, then the wholesaler requirement must be legitimate so in-state and out-of-state retailers are not similarly situated for the purposes of Commerce Clause analysis because in-state retailers must purchase their liquor from different wholesalers under the“legitimate” three-tier system. To be clear, this opinion does not perform rigorous Commerce Clause analysis because it starts from the premise that the in-state and out-of-state retailers are not similarly situated on account of this wholesaler purchasing issue. It does not question whether a wholesaler requirement is a legitimate 21st Amendment exercise in light of the SCOTUS Commerce Clause cases that have originated since the dicta it cites as asserting their analysis and cites circuit and district court opinions arising before Tennessee Wine to bolster this decision about wholesalers. The analysis presumes the law is that three-tiered arrangements are per se lawful and that they are authorized to abrogate the Commerce Clause and also presumes the legitimacy of requiring a physical presence in-state and the other asserted health and wellness impacts of the legislation without remanding for the ability for the plaintiffs to show that the laws do not create the effect the state argues they create nor impede health or wellness.

You can read our previous posts on this case as well as find the briefs filed by the parties here, here, here and here and you can listen to the oral argument in this important alcohol shipping case here.

Briefly, the plaintiffs sued the state of Michigan over a state law that allows in-state retailers the privilege of delivering direct to consumers, but refuses to issue a license to out-of-state retailers to allow them to deliver to Michigan consumers. Building on recent Commerce Clause jurisprudence regarding the interplay of the 21st Amendment and the Commerce Clause, the plaintiffs looking to expand alcohol shipping rights had won at the District Court level and the State appealed to the 6th Circuit.

In its opinion, the Appellate Court cited tied-house evils from the 1890s as the main impetus for allowing states to run rough-shod over individual consumers rights in 2020 (yes, they cited Toward Liquor Control – Rockefeller’s pet 1933 project that has done more harm to the cause of responsible liquor legislation than any other book) failing to take heed of Justice Oliver Wendell Holmes Jr.’s great admonition: “It is revolting to have no better reason for a rule of law than that so it was laid down in the time of Henry IV. It is still more revolting if the grounds upon which it was laid down have vanished long since, and the rule simply persists from blind imitation of the past.” Never mind that consumption habits have completely changed in the past 130 years, “temperance” appears to still be a blindly agreed but never tested or scientifically proven justification that is allowed to drive restrictions on consumer access and harm to consumers through increased pricing and lack of availability.

Taking up the Tennessee Wine & Spirits decision, the 6th Circuit’s opinion states that Tennessee Wine created a new test for Dormant Commerce Clause alcohol cases – namely whether “the law ‘can be justified as a public health or safety measure or on some other legitimate nonprotectionist ground.’ … But if the ‘predominant effect of the law is protectionism,’ rather than the promotion of legitimate state interests, the Twenty-first Amendment does not ‘shield[]’ it.”

The Court also assumes dicta in a few cases pre-Tennessee Wine and some pre-Granholm to allow three-tier systems to escape Commerce Clause scrutiny. But it fails to address the fact that not all alcoholic beverage laws are a result of the structure of the three-tier system; so to say a state has a three-tier system and that its laws are therefore blessed under jurisprudential dicta saying states can impose three-tier systems completely misses the point and the required questions regarding Commerce Clause analysis. This lack of rigorous analysis assumes, ab initio, that a law is justified. Which is not what occurred in Granholm or Tennessee Wine – even though those states had three-tiered systems. The Court also assumes based on Cooperand Byrd(6th Circuit Byrd, not Scotus Byrd) that it is legitimate for a state to mandate that a retailer be physically located within a state to sell within that state.

Given that the opinion assumes that a three-tier system can impose a wholesaler requirement on retailers and the flow of alcohol, and that physical presence can be required, the opinion in its opening pages presumes the answer for this entire opinion and the questions pressed under the Commerce Clause by the plaintiffs. The opinion then goes on for many pages to reiterate its decision to state that the requirement that all liquor sold in the state through delivering retailers must be purchased from in-state wholesalers is a legal mandate not only upheld by the 7th, 5th and 2nd circuits, but also presumed legitimate by that three-tier dicta included in the Supreme Court’s Granholm decision ignoring Granholm’s: “The aim of the Twenty-first Amendment was to allow States to maintain an effective and uniform system for controlling liquor by regulating its transportation, importation, and use. The Amendment did not give States the authority to pass nonuniform laws in order to discriminate against out-of-state goods, a privilege they had not enjoyed at any earlier time.”

The presumption of an answer flowing from the premises that requiring that liquor be purchased through in-state wholesalers is a legitimate restriction under the 21st Amendment and that a requirement of an in-state presence is also a legitimate exercise of state power under the 21st Amendment even though it conflicts with the Commerce Clause is evident when the Court presents the answer and question as follows:

If Michigan may have a three-tier system that requires all alcohol sales to run through its in-state wholesalers, and if it may require retailers to locate within the State, may it limit the delivery options created by the new law to in-state retailers? The answer is yes.

The Court follows this with a pass at analysis and justification:

The regulatory environments for each state mean that the entities are inherently different so commerce clause analysis cannot compare apples to apples because each retailer must purchase from different wholesalers within their state. – But this is all fallacy as it is the state creating the environment to begin with, so to allow the state to create a system whereby it is able to discriminate against out-of-state actors just provides states with a method to create a discriminatory system that cannot obtain honest Commerce Clause parity or even analysis (since the creation of the discriminatory system apparently allows a state to escape scrutiny).

The 21st Amendment creates a different test for alcohol regulations. The “can the law be justified as a public health or safety measure or on some other legitimate non protectionist ground” test. – But then the Court presumes and accepts the stated reasoning without the proper remand to see 1) if the law actually accomplishes its intended result and 2) whether the result really is the kind of health and wellness impact Tennessee Wine may have been asserting allowed states to violate the Commerce Clause.

The real issues here are that the right questions don’t get addressed. For starters, isn’t the Commerce Clause question whether or not Michigan should issue retailer licenses to out-of-staters or should create some license allowing the shipping privileges for out-of-staters? Phrased that way, the same analysis might take hold, but at least the right question sets up and explains the opinion’s jump to the assertion that in-state and out-of-state retailers aren’t similarly situated for purposes of commerce clause analysis (a – the don’t have to buy from the same Michigan sources, and b – they aren’t physically capable of being inspected).

Additionally, if the legal analysis results in an interpretation of Section 2 of the Twenty-first Amendment as the Court states: Allowing States to “channel” alcohol sales through in-state wholesalers is “precisely what § 2 is for.” Then isn’t the analysis really, why do some sellers (small manufacturers empowered with direct-shipping rights) not have to funnel their beer/wine/spirits through wholesalers, but others do? Also, since some out-of-state small producers are allowed to ship directly to consumers, doesn’t that create the exception that swallows the rule that somehow, Michigan is maintaining the three-tier regime which should be enforced to discriminate against out-of-state retailers? I.e., Michigan does not maintain a strict three-tier system because alcohol deliveries can take place without going through the tiers. The opinion calls this an “exception” to the three-tier system and states that the holding of Granholm was simply that such “exceptions” cannot be discriminatory. But that wasn’t Tennessee Wine’s determination or analysis of Granholm.

It is worth also noting that the Court took the lower court opinion to task for fashioning a remedy to allow all shipping rather than striking shipping from the statute as there is a severability clause in the statute. But that’s really the difference between striking the shipping statute altogether or asking Michigan to award shipping privileges to out-of-state retailers (again, what’s the proper question?).

In a concurring opinion, Judge McKeague asks whether online purchasing and shipping rights ala Wayfair aren’t the real issue ultimately finding that while the question would be interesting, there is no justification under current precedent for reaching whether such a new online market can be regulated under old 21st Amendment jurisprudence:

It’s a whole new market; a market that early twentieth century state legislatures didn’t anticipate when crafting the three-tier systems the Supreme Court has since approved. So I’m not so sure that the in-state retailer requirement is just a coda to Michigan’s three-tier regulations. A state that opens up direct online shipping to consumers presents the “changing economic and social” circumstances that may call for a different balance between the dormant Commerce Clause and the Twenty First Amendment.

Hopefully we’ll see a request for an en-banc hearing that looks to address some of the issues about the right questions.

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Ashley Brandt

Hi there! I’m happy you’re here. My name is Ashley Brandt and I’m an attorney in Chicago representing clients in the Food and Beverage, Advertising, Media, and Real Estate industries.
A while back I kept getting calls and questions from industry professionals and attorneys looking for advice and information on a fun and unique area of law that I’m lucky enough to practice in.
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